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Rich Kruger is retiring at the end of December.

Imperial Oil CEO offers faint praise for Alberta curtailment cuts for rail plan

Alberta is going in the “right direction” with its plan to ease production curtailments for oil producers who add crude-by-rail capacity, the CEO of Imperial Oil Ltd. said, although he didn’t commit to transport more oil by rail.

Rich Kruger – one of the industry’s most outspoken critics of mandatory curtailments that began last January – said it’s necessary to review of the details of the province’s plan, which was announced Oct. 31.

“I would say, in the form of a compliment to the government, they’re trying to make the best of a bad situation. They’re playing the cards they were dealt,” he said on a webcast to discuss third-quarter results.

“The bad situation is that we’re in curtailment in the first place.”

Under the previous NDP government, Alberta put a cap on the amount of oil that the industry can produce as a way to narrow price discounts that grew as oil production exceeded the ability of pipelines to get the crude to market.

The measure was continued by the United Conservative government, when it was elected last spring, but the industry quota is rising to 3.81 million barrels per day in December, up 250,000 bpd from the original limit of 3.56 million bpd.

Imperial is more heavily invested in crude-by-rail than most producers because it co-owns a terminal in Edmonton with the capacity to load 210,000 bpd _ about one third of the province’s estimated rail capacity of 500,000 to 600,000 bpd.

However, Kruger said the economic case for shipping oil by rail steadily worsened over the summer because there’s not enough difference in price between Alberta and the U.S. Gulf Coast end market to support shipping by rail, which is more expensive than pipelines.

Rail shipments by Imperial in the third quarter fell from 76,000 bpd in July to 35,000 bpd in September, he said, adding the volumes would be headed even lower in the current quarter if not for the government announcement and the possible impact of an outage on the Keystone pipeline following a large oil spill in North Dakota earlier this week.

He said rail shipping volumes are “to be determined at this point,” adding Imperial uses Keystone but declining to give volumes.

Rival oilsands producer Cenovus Energy Inc. said it would quickly add as much as 20,000 bpd to oilsands output and proceed with bringing an oilsands expansion on stream, to add 50,000 bpd in the next six to 12 months following the Alberta decision on curtailments.

Suncor Energy Inc., meanwhile, said it would put up to 30,000 bpd on rail over the next month or so in view of the announcement.

Alberta’s lack of pipeline capacity has made oil-by-rail the next-best method of transport, but the switch comes with certain costs. In a 2016 study, researchers at the University of Alberta found that pipeline transportation of oil produced between 61 and 77% fewer greenhouse gas emissions than rail, and numerous studies have found that pipelines are the safer transport method.

Imperial reported Nov. 1 that net income fell 43%t to $424 million in the three months ended Sept. 30, compared with $749 million or 94 cents per share in the same period of 2018.

It said cash generated from operating activities added up to $1.38 billion in the quarter, up from $1.21 billion in the third quarter of 2018.

The biggest drag on earnings came from Imperial’s downstream operations, where net income slipped to $221 million from $502 million due to lower refinery profit margins and planned maintenance outages.

On the upstream side, Imperial reported slightly lower income due to higher operating expenses and royalties – it noted lower volumes at its Kearl oilsands mine and Cold Lake bitumen works but higher volumes from the Syncrude mining facility, in which it holds a 25 per cent stake.

Total production rose to 407,000 barrels of oil equivalent per day from 393,000 boe/d in the same period of 2018.

Kruger is retiring at the end of the year and his role is to be assumed by Brad Corson.


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Nova Scotia and Alberta reviewing vaping regulations

Government in Alberta and Nova Scotia are reviewing laws and regulations around vaping products.

In Nova Scotia, Premier Stephen McNeil says his government is looking at regulations that could ban flavoured vaping products in the province.

McNeil responded Wednesday after the Opposition Progressive Conservatives introduced legislation aimed at addressing the growing numbers of young people who vape.

The Tory bill calls for a ban on e-liquids, and prohibits the use and possession of tobacco products by people under the age of 19.

However, McNeil says the government is already considering a series of potential regulatory changes that would require licences to sell vaping products, similar to those required to sell tobacco.

He says vaping products are regulated by Health Canada, and he believes the federal agency must also “step up” to tighten rules around things like nicotine content.

The premier added that some provincial legislation may also be needed, but there likely won’t be a bill introduced during the current fall session of the legislature.

“We don’t actually need (legislation) to ban the flavours, but we may need to in terms of making other changes that may be required on how we deal with that product,” McNeil said.

He added the regulatory changes could appear before the session wraps up.

Progressive Conservative Leader Tim Houston said something has to be done about a product that was originally marketed as a smoking cessation device.

Houston said while vaping products have probably helped some smokers quit the habit, it’s becoming more clear there are potentially harmful health effects.

“My party’s objective is to make sure the discussion is being had,” he said. “If the premier is willing to engage in that discussion, then that’s a good thing.”

In an August interview, Dr. Robert Strang, Nova Scotia’s chief medical officer of health, said that online sales were another challenge for the province. He also expressed concerns about teens being able to purchase products from vape stores.

While Nova Scotia was one of the first provinces to introduce regulations banning the sale of e-cigarettes to anyone under 19 and banning in-store advertising, Strang said there could be further tightening.

Meanwhile, the Alberta government will consider adding rules for vaping when it reviews the province’s smoking and tobacco legislation next month.

Health Minister Tyler Shandro said he’s particularly concerned about the growing number of youth who vape, but there’s evidence it can be helpful for adults who are trying to quit smoking conventional cigarettes.

“I respect the rights of adults to choose for themselves, including choices that are unhealthy, but I don’t want my kids or anyone else’s kids to be pressured to start smoking or to start vaping,” he told reporters Wednesday.

He added a quarter of Alberta teens report having vaped in the last month.

Some acute lung illnesses have been reported as a result of vaping in Canada, but to date no cases in Alberta have come up.

The Centres for Disease Control in the United States has said 80% of the 800 recently reported severe lung illnesses from vaping involved people inhaling the cannabis compound THC with their device.

The review of Alberta’s Tobacco Act – which was already set to take place this fall regardless of recent vaping headlines – will be led by legislature member Jeremy Nixon. It is to seek feedback from school districts, municipalities, retailers and health advocates.

Nixon said the review could look at a minimum age for vaping, limiting its use in public places and workplaces, and strengthening restrictions for advertising, especially to youth.

The work is to begin Nov. 1 and be completed by year’s end, with a goal of having any changes brought before the legislature next spring. But Shandro said the government could act sooner if Alberta’s chief medical officer of health recommends any urgent action.

The legislation was last reviewed in 2012.

“This is a new, emerging technology that fell outside the scope of what the legislation said at the time,” Shandro said.

Darryl Tempest, executive director at the Canadian Vaping Association, said the Alberta government is taking a measured approach.

“We at the CVA share the deep concerns of Canadians about the recent cases of lung illnesses, particularly among youth,” he said.

“It’s critical that health authorities get to the primary source of this outbreak, as non-nicotine e-liquid vaping devices sourced on the black market have been implicated in many cases. It is for this reason that we encourage other provincial lawmakers and authorities to follow the example of Alberta.”

David Hammond, a professor of public health at the University of Waterloo, said governments need to act on vaping before there are calls for an all-out ban, which he said would be unproductive and unrealistic.

The key is to target vaping products at adults looking to get off more harmful traditional cigarettes, while cracking down on anything that would entice youth to pick up the habit, he said.

That could include banning advertising anywhere accessible to kids and limiting the zany flavours available for vaping devices popular with youth.

“I actually think it’s a barrier to some adult smokers and to some health professionals considering these products for quitting because they look like kiddie products – peanut butter and jam, chocolate chip cookie dough, cereal milk.”

At the same time, adults need to be better informed, Hammond added.

“In fact, smokers are confused,” he said. “A lot of them think that it’s just as bad or worse than smoking. And so we’ve actually failed both ends of this issue.”

 


Federal judge grants B.C. injunction against Alberta’s turn off the taps law

A Federal Court judge has granted the British Columbia government a temporary injunction against an Alberta law that could have limited oil exports to other provinces.

In a decision released Sept. 24, Justice Sebastien Grammond said Alberta’s so-called turn-off-the-taps legislation raises a serious issue and could cause irreparable harm to the residents of B.C.

“British Columbia has met the criteria usually applied by the courts for the issuance of such an injunction,” he wrote in his decision.

“It has shown that the validity of the act raises a serious issue. It has demonstrated that an embargo of the nature evoked by the members of Alberta’s legislature when debating the act would cause irreparable harm to the residents of British Columbia.”

The B.C. government initially brought the action before Alberta’s Court of Queen’s Bench, which passed it to the Federal Court.

Alberta tried to strike the action by arguing that it wasn’t in the jurisdiction of the Federal Court, but the judge dismissed that motion.

Grammond said B.C. has met the test for blocking the law until the courts can decide its validity.

B.C. Attorney General David Eby said he’s pleased the injunction was granted and the case will be going to trial.

“We think it’s quite a straight forward case, but the ultimate decision will of course be up to the court,” he told reporters in Vancouver.

“On our reading of the Constitution, Alberta is not allowed to restrict the flow of refined product to other provinces in a way to punish them for political positions that are taken they don’t like,” said Eby. “That’s our understanding of the Constitution. Alberta has a different understanding and the court will be deciding about that.”

The turn-off-the-taps legislation gives Alberta the power to crimp energy exports from the province.

It was passed, but never used, by Alberta’s former NDP government as a way to put pressure on B.C. to drop its fight against the Trans Mountain oil pipeline expansion to the West Coast.

The new United Conservative government proclaimed it into force shortly after Premier Jason Kenney was sworn into office in April, but he had said it wouldn’t be used unless B.C. throws up further roadblocks to the pipeline.

B.C. had called the law a loaded gun and had asked the courts to make sure it didn’t accidentally go off.

NDP Leader Rachel Notley said that the injunction has rendered the law useless.

“We told the premier not to proclaim this legislation because it would be like blowing up the missile while it’s still on the launchpad,” she said in a news release.

“And that’s exactly what has happened today. This injunction has rendered the legislation powerless. Any further threats from the premier to turn off the taps are empty.”

Grammond said in his decision that members on both sides of the Alberta legislature explained the law’s purpose in relation to the British Columbia government’s actions on the Trans Mountain expansion project.

“These statements make it abundantly clear that the purpose of the act is to inflict economic harm to British Columbia through an embargo on the exportation of petroleum products to that province,” he said.

The embargo, he said, would not only cause a considerable increase in the price of gas and diesel in the province, but any fuel shortages could also endanger public safety.

The Trans Mountain expansion, first approved in 2016, would triple the amount of oil flowing from the oilsands to B.C.’s Lower Mainland and from there to lucrative new markets across the Pacific.

The federal government bought the existing pipeline last year for $4.5 billion after its original builder, Texas-based Kinder Morgan, threatened to walk away from the project because of B.C.’s resistance.

The Federal Court of Appeal quashed the approval months later on the grounds that there hadn’t been enough consultation with First Nations or consideration of the pipeline’s potential impact on marine wildlife.

The project was approved for a second time by the federal cabinet this summer.


Green’s call for ban on foreign oil imports, using Alberta oil instead

Green party Leader Elizabeth May says saving the world from climate change requires Canada to get off oil before the middle of the century.

In the meantime, she wants Canada off foreign oil as soon as possible.

The promise to make Canada energy independent is _ perhaps unexpectedly _ in line with the economic and climate strategy of Conservative leader Andrew Scheer.

Scheer’s plan calls for Canada to import no foreign oil by 2030, partly by planning an energy corridor across Canada that could simplify the construction of pipelines able to move Alberta oil to any coast. He sees it as a way to find additional domestic markets for Canada’s oilsands, in a bid to increase their production.

May’s plan, to “turn off the taps to oil imports” is only a stop-gap measure to keep foreign oil out until Canada can break its oil habit altogether.

By 2050, May wants bitumen to be used in Canada only by the petrochemical industry for plastics, rubber, paint, and other such products.

“As long as we are using fossil fuels we should be using our fossil fuels,” said May.

May’s climate plan is likely to get more scrutiny than its predecessors in past elections.

The Liberals and NDP already proved they are paying close attention to the rising threat of Green support, with both pushing similar motions to declare climate change an emergency in the House of Commons earlier this month. Both motions were tabled less than a week after the Greens elected a second MP in a Vancouver Island byelection, and not long after a provincial wing of the party formed the official opposition in Prince Edward Island.

May said she’s perfectly fine with Green popularity pushing other parties to raise their games on climate. While both the Liberals and NDP claimed their motions had been in the works before the byelection result, May said there is no doubt in her mind that Paul Manly’s winning and the NDP and Liberals finishing distantly third and fourth, “had almost everything to do with” the motions.

The NDP motion failed because it called for Canada to drop plans to expand the Trans Mountain pipeline, a pipeline May also opposes. The Liberal motion hasn’t yet gone to a vote.

The Green climate plan also calls for Canada to double its cuts to greenhouse- gas emissions by 2030 and get emissions to zero by 2050. That plan includes no longer selling combustion-engine cars after 2030 and replacing all existing combustion-engine vehicles by 2040.

Canada imports about a million barrels of oil a day and produces four times that much. In 2017, Canada produced 4.2 million barrels of oil, and exported 3.3 million of those. Domestic refineries handled 1.8 million barrels.

Canada’s oil producers already pump enough product to meet domestic demand but there are two problems: there is no pipeline from the oil-rich west to refineries in the east, and even if there were, those refineries aren’t equipped to handle the heavier bitumen that is the Alberta oilsands’ trademark.

For Canadian refineries in the east, bitumen from the oilsands must be upgraded to synthetic crude. May’s plan is to invest in upgraders to do it.

She acknowledges weaning Canada off foreign oil won’t happen overnight, given existing contracts Canadian refineries have and figuring out how to build the upgraders and then ship the product.

Privately, Liberal government critics suggest there is no way to have Canada’s east coast use Canadian oil without building a new pipeline to get the products there. May does not support a new pipeline anywhere, and argues the raw bitumen could be transferred by rail as long as Canada invests more in its rail services.

The proposed Energy East pipeline to carry diluted bitumen to the east coast fell apart in 2017 amid significant opposition in Quebec, opposition that continues under the new Coalition Avenir Quebec government.

Scheer’s plan is to establish an energy corridor that would allow an Energy East-like pipeline to proceed alongside interprovincial electricity grids, with only one right-of-way required.

May said the Greens are the “only party that have a plan that allows human civilization to survive.”

“It’s not a Canadian lifestyle choice,” she said. “All of humanity is at risk.”

 


Alberta oil cuts, close the taps bill are unwelcome interventions: Suncor CEO

Incoming Suncor president and CEO Mark Little addresses shareholders. Photo: Jeff McIntosh Canadian Press

Incoming Suncor president and CEO Mark Little addresses shareholders. Photo: Jeff McIntosh 

 

The new CEO of Suncor Energy Inc. says he doesn’t want the Alberta government to carry through on its threat to cut off shipments of oil and refined products to B.C. if its western neighbour continues to interfere with pipeline growth.

Following the company’s annual meeting in Calgary on May 2, Mark Little said any such action resulting from the proclamation of Bill 12 by the new United Conservative government this week would create a barrier between Suncor’s refinery assets in the Edmonton area and its customers in British Columbia.

He said Suncor is using the Trans Mountain pipeline to the West Coast now to bring gasoline and diesel to the B.C. market and it supports pipeline expansion so that it can grow that market.

“We’re hoping that through the government’s negotiations this can get sorted out, because the last thing we want to do is have an impediment in serving our customers,” he said.

He added he views the Alberta bill as “a fairly significant intervention into a market to try to resolve a dispute.”

Earlier in the day, Little told analysts on a conference call that Suncor remains opposed to another Alberta market intervention, its oil production curtailments, in spite of their “slightly positive” impact on first-quarter financial results.

The results show the value of Suncor’s integrated business model and extensive pipeline contracts at a time of turmoil in the industry, he said.

“In the fourth quarter of 2018, there were low benchmark prices with wide heavy and light crude oil differentials. Whereas, in the first quarter of 2019, there were higher benchmark prices and narrow differentials,” Little said.

“Both quarters, we were able to generate significant funds from operations.”

Little officially took over as chief executive from Steve Williams at the annual meeting in downtown Calgary. Williams was given a standing ovation by shareholders after a speech about the company’s accomplishments during his seven years as CEO.

Alberta’s decision to impose quotas on its biggest oil producers was designed to free up pipeline space and draw down crude storage after price discounts on western Canadian oil spiked last autumn.

The move is supported by oilsands producers like Cenovus Energy Inc., whose CEO pointed out last week the resulting higher prices have helped boost royalties to Alberta’s treasury.

But it’s opposed by rivals such as Imperial Oil Ltd. and Husky Energy Inc. who note that crude-by-rail exports plunged to 131,000 barrels per day in February from an all-time high of 354,000 bpd in December _ which means oil export capacity was actually reduced.

Both points are accurate, said Little, but he added the confusion means Suncor and others are reluctant to spend money on new projects.

The UCP government has supported curtailments brought in by the NDP and favours gradually reducing the cuts over the coming year.

Suncor said its quota strategy involved maximizing highly profitable upgraded synthetic crude oil volumes, while throttling back lower-margin mined raw bitumen, a move that has temporarily increased its operating costs per barrel.

The company said average realized bitumen prices jumped to $62.92 per barrel at Fort Hills in the first quarter, up from $30.57 in the fourth quarter of 2018, as oil price discounts eased.

The Calgary-based oilsands producer and refining giant reported net income for the first three months of the year that beat analyst expectations thanks to higher oil prices, record downstream results, growing oilsands production and a $264-million after-tax insurance gain on its assets in Libya.

Net earnings were $1.47 billion or 93 cents per share in the quarter, up from $789 million or 48 cents in the same period of 2018.

Its operating profit came to $1.2 billion, compared with $985 million in the first quarter of 2018.

It had total oilsands production of 657,000 barrels per day in the first quarter, compared with 572,000 bpd a year earlier, thanks to gains at the expanded Fort Hills oilsands mine and higher contributions from the Syncrude mine and upgrader, in which it has a 58.7 per cent stake.

The company says refining and marketing delivered record operating earnings of $1 billion, up from $789 million in the first quarter of 2018.

Suncor said production from its East Coast offshore Hebron project increased to 18,300 bpd (net to Suncor) and is continuing to grow following the completion of a fifth production well in the first quarter.

It said first oil was achieved ahead of schedule in the quarter at the Oda project offshore Norway, in which it has a 30 per cent stake.